By Harry Robertson

LONDON (Reuters) - Investors are moving back into the European corporate bond market after one of the most brutal years in history, lured by juicy yields and hopes that central banks may soon let up on their aggressive interest rate hikes.

Funds focused on investment grade euro-denominated corporate debt have seen sizeable inflows for four straight weeks, according to data from Refinitiv Lipper, even as Europe teeters on the brink of recession.

Net inflows came in at $1.17 billion in the week to Nov. 9, the highest weekly amount this year.

Data from BlackRock tells a similar story. A net $3.62 billion flowed into BlackRock's exchange-traded products which track investment grade European corporate debt in the 30 days to November 17. The asset manager said it was a marked pick-up which outstripped flows into government bonds.

"We are at the beginning of a rotation as investors come back into credit," said Carolyn Weinberg, global head of product for ETF and index investments at BlackRock. "Our clients are buying government bonds and investment grade bonds."

Graphic: Flows into European corporate bond funds have jumped - https://graphics.reuters.com/EUROPE-BONDS/zjpqjknlnvx/chart.png

Underpinning the renewed interest are investors' bets that the pain from central bank rate hikes is almost over.

With latest data showing U.S. inflation cooling, traders now expect fewer rate hikes from the Federal Reserve, which lifts some of the pressure off the European Central Bank. This has buoyed government bond prices, pushing their yields down, and boosted riskier assets such as corporate bonds and stocks.

The iBoxx euro corporate bond index has risen almost 4% since hitting an eight-year low in October, although it remains down 13% for the year.

HIGHER YIELDS ATTRACT INVESTORS

After a dramatic sell-off in both bonds and equities in 2022, and inflation easing from sky-high levels, the stage is set for a rebound in both assets, according to Denise Chisholm, director of quantitative markets strategy at Fidelity Investments.

"We can see a situation where both stocks and bonds are actually positive from a total return perspective over the next six months," she said.

Higher yields are a big draw. Bond yields, which move inversely to prices, shot upwards as fixed income markets crashed this year. Now investors can get yields of around 4% or more on short-dated bonds issued by companies with strong credit ratings, up from less than 1% at the start of the year.

The dividend yield on the STOXX 600 for example is lower at 3.37%, according to Refinitiv data.